This blog is the fourth extract from our eBook, “A Short History of Bitcoin Myths”. You can download your copy here or read other extracts over here:
Part 1: A Short History of Bitcoin Myths
Part 2: The Genesis of Bitcoin
Part 3: Myth I - Crypto Anarchy
Part 4: Myth II - Bitcoin Offers Secrecy for Criminals
Part 9: The Rebirth of Bitcoin
In our previous blog, we busted the myth that the cypherpunk movement introduced to the Bitcoin story soon after its founding: crypto anarchy. We illustrated how the anarchy parasite invaded the Bitcoin community, attempting to twist its primary objective of providing authorities with an immutable evidence trail to strengthen them in their fight against criminals and fraudsters, to the goal of undermining authorities.
A second myth and abuse that popped up early in the Bitcoin timeline was one of using Bitcoin as a tool for criminals seeking to bypass authorities.
The idea that Bitcoin lets you operate in secret and undercover reveals an ironic misunderstanding about the immutable and transparent nature of the Bitcoin ledger. Nonetheless, in the early days of Bitcoin, a number of criminal organisations sought refuge in Bitcoin. You can already tell how this one turned out, right?
One of the most notorious criminal operations relating to Bitcoin began in 2011 when Ross Ulbricht founded an online black market called Silk Road. As it operated as a Tor ‘hidden’ service, the marketplace became best known as a platform for selling illegal drugs. Offering its users the promise of anonymity, Silk Road soon became a lure for all sorts of criminals.
When the FBI shut down Silk Road late in 2014, the crackdown resulted in more than 17 convictions for sex crimes including for Richard Huckle of the UK who is currently serving 22 life sentences for 71 child sex offences for sites on the dark web that linked to Silk Road (Source).
“Children between the age of 12 and 16 were exchanged using Silk Road.”
Silk Road’s founder, Ross Ulbricht, with an online alias of Dread Pirate Roberts, was arrested, tried and convicted of money laundering, computer hacking, conspiracy to traffic fraudulent identity documents, and conspiracy to traffic narcotics using the Internet. The FBI seized 30,000 BTC from Silk Road's bitcoin holdings and an additional 144,000 BTC from Ulbricht’s private holdings three weeks later. He has subsequently been sentenced to life imprisonment without parole.
While the grim story of Silk Road is relatively well known and often associated with Bitcoin, what is not often told is how the cesspool was exposed and successfully prosecuted. Had the marketplace indeed been anonymous, what gave the gig up?
The answer is Operation Onymous, an international law enforcement operation formed as a joint venture between the FBI and Europol, with the added support of the US Department of Homeland Security, Immigration and Customs Enforcement (ICE), and Eurojust. The operation’s target: Darknet markets and other hidden services operating on the Tor network.
So far members of the joint operation have kept their lips sealed about the method they used to crack the case. In a statement that sounds like a warning to criminals who think they can find refuge in ‘anonymous’ online markets, a Europol representative said: "This is something we want to keep for ourselves. The way we do this, we can’t share with the whole world, because we want to do it again and again and again.”
While methods used in Operation Onymous is a matter of speculation, there is no mystery in how Bitcoin’s ledger could be used to reveal criminals and their activities:
The Bitcoin blockchain ledger is a permanent record of its entire transaction history, noting senders and receivers (by wallet addresses) of each transaction, the timestamp of the transaction, transaction values, and other bits of data. As there is a distributed network of nodes each with an identical copy of the ledger, an attempt to tamper with the record will be impossible to hide. Should one of the nodes submit a new transaction to the network while sneaking in an altered historical record, other nodes will immediately notice the discrepancy and consider the tampered version invalid.
While transaction ID’s (wallet addresses) make the system pseudonymous, the only thing standing between uncovering the identity of transaction actors is to match the wallet with an owner. As illustrated by Operation Onymous, there’s no refuge.
Even governments agree that Bitcoin is a bad choice for criminals! After conducting a fact check on Bitcoin in 2018, the Quebec government concluded that there is no meaningful connection between Bitcoin and criminal activities, primarily because Bitcoin transactions are not anonymous and can often be quite easily tracked by law enforcement agencies. In the article tabling the study and findings, Chief Scientist Rémi Quirion’s office stated that:
“Bitcoin is not above the law, nor is it a magnet for illicit transactions: it forms only a tiny part of the criminal money circulating around the planet. The reason: it is less attractive for anyone who wants to make transactions without leaving a trace.”
The self-proclaimed creator of Bitcoin, Craig Wright has described his creation as a system that can stop criminal activity because of its ability to trace and track violators. Wright is crystal clear about his motives:
“This is why I created bitcoin. It’s not a protest against government, it’s a method that over time will replace SWIFT with something that cannot be easily bypassed by criminals or even governments.”
How did the myth of Bitcoin as anonymous and untraceable come about? The apparent answer hints at the criminal intentions of the myth-makers (and anonymity coin makers), as explained through the following statements by Bitcoin community leaders:
“I can’t discuss the importance of sight without raising the issue of the absolute darkness coins such as Monero (XMR) and Zcash provide. Many in this space don’t realise the pure poison this offers. Essentially, what these coins are enabling is a means for financial anarchy, allowing nefarious parties to transact without audit or consequence. They take the already flawed traditional financial system and remove all friction to create an environment primed for those who wish to remain unknown and unseen, perpetuating a network for fiendish action. While some extol the benefits of an anonymous coin, its worthwhile to consider the societal repercussions and understand there’s a drastic difference between privacy and anonymity.” Bitstocks CEO, Michael Hudson
And then there's Craig Wright’s response to the attacks on his reputation since he has publicly revealed himself as the inventor of Bitcoin:
“...it’s because they are the criminals and they seek to ensure that their illegal operations, bucket shops, illegal gambling, drug sales and more continue to persist. Right now, organisations involved in the “crypto currency” industry are predominantly seeking to make money through assisting and enabling money-laundering. Luckily, the nature of a blockchain is such that all of this can be used as an evidentiary trail for a long time.”
The great irony of portraying Bitcoin as a tool for criminal activity is that, by its nature, it offers the very opposite: honest money.
“If you want to commit crime on bitcoin, a token scripted within bitcoin, a system that acts within bitcoin is a Fiat marker, then you have to understand that you have an immutable evidence trail associated with you.” Craig Wright
Considering that most criminals try their very best not to get caught in the act, or ever after (movie portrayals of serial killers aside), the Bitcoin network’s public and immutable ledger is a significant liability for anyone with criminal intentions.